Recording the Effects of Adjusting Entries and Reporting a Corrected Income Statement and Balance Sheet
On December 31, 2011. the bookkeeper for Grillo Company prepared the following income statement and balance sheet summarized here but neglected to consider three adjusting entries.
| As Prepared | Effects of Adjusting Entries | Corrected Amounts |
Income Statement |
|
|
|
Revenues | $ 97,000 | – | – |
Expenses | (73,000) | – | – |
Income tax expense Net income | $24,000 | – | – |
Balance Sheet Assets |
|
|
|
Cash | $20,000 | – | – |
Accounts receivable | 22,000 | – | – |
Rent receivable |
| – | – |
Equipment | 50,000 | – | – |
Accumulated depreciation | (10,000) | – | – |
| $ 82,000 |
| – |
Liabilities |
|
|
|
Accounts payable | $10.000 | – | – |
Income taxes payable |
| – | – |
Stockholders’ Equity |
|
|
|
Contributed capital | 40.000 | – | – |
Retained earnings | 32.000 |
|
|
| $82.000 |
|
|
Data on the three adjusting entries follow:
a. Rent revenue of $2,500 earned for December 2011 was neither collected nor recorded.
b. Depreciation of $4,500 on the equipment for 2011 was not recorded.
c. Income tax expense of $5.100 for 2011 was neither paid nor recorded.
Required:
1. Prepare the three adjusting entries that were omitted. Use the account titles shown in the income statement and balance sheet data.
2. Complete the two columns to the right in the preceding tabulation to show the correct amounts on the income statement and balance sheet.
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